In the scrubland east of Reno, Nev. -- where cowboys gamble and wild horses still roam -- a diamond-shaped factory of outlandish proportions, Tesla's Gigafactory, on Wednesday produced the first battery cells to power the company's energy-storage products.
By 2018, the Gigafactory, which is now less than a third complete, will be staffed by 6,500 full-time employees and singlehandedly double the world's production capacity for lithium-ion batteries, according to a new hiring forecast from Tesla.
The full activation of the Gigafactory carries existential significance for Tesla as a whole, representing a new sense of urgency at a company known for setting unreachable deadlines. After missing almost every aggressive product milestone it set for itself over the past decade, Tesla must prove to investors and customers that it can stick to a schedule for its first mass-produced car, the Tesla 3.
There are promising signs. Wednesday marked the third successful target Tesla met for the New Year. The company fulfilled its promise to complete rapidly a huge battery-storage project to back up the grid in California.
The Gigafactory itself is moving ahead briskly. The hiring plans put Tesla and Panasonic two years ahead of their original agreement with the Nevada government. The company initially promised to provide full-time jobs to 4,000 Nevadans by 2019 and 6,500 jobs by 2020. In May, Tesla moved its forecast for peak battery production at the Gigafactory up two years, to 35 gigawatt hours of cell production and 50 gigawatt hours of peak production by 2018.
For Tesla to succeed, battery production is crucial -- there simply aren't enough lithium-ion batteries being made anywhere for Tesla to achieve its goal of 500,000 Model 3 sales by 2018. Equally problematic is the fact that current market prices are too high for the $35,000 car to be profitable. Tesla took its unprecedented leap into the desert in the hope that the scale of the $5 billion Gigafactory would drive down costs, and demand would arrive just in time to keep it all afloat.
Batteries are the limiting factor for electric cars, but few automakers have made a similar commitment to producing them, choosing instead to let suppliers like LG Chem and Samsung shoulder the risk. In 2015, 88 percent of the global lithium ion cell manufacturing took place in China, Japan, and South Korea, according to a report by the Clean Energy Manufacturing Analysis Center.
Making America an instant player in the battery production marketplace isn't just about cars. Tesla also is building battery packs to power homes and back up the electric grid. In September, the company announced a deal to supply a record 20 megawatts/80 megawatt-hours of energy storage to Southern California Edison as part of a wider effort to prevent blackouts, replacing fossil-fuel electricity generation with lithium ion batteries.
The Powerpacks were assembled at the Gigafactory, using imported versions of the new 2170 cell format Panasonic designed with Tesla, and deployed in record time.
Tesla also aims to begin shipping the Powerwall 2 home batteries by the end of January, at prices that by some estimates are 30 percent cheaper than the closest competitor. "We believe Tesla battery sales are accelerating," said Baird analyst Ben Kallo, who recently listed Tesla as the best stock pick for 2017. "The ramp of Tesla Energy and Model 3 production could exceed expectations."
The storage products fit into Tesla Chief Executive Officer Elon Musk's long-term vision of transforming Tesla from an an electric-car company to a clean-energy company. That's the same motivation behind his recently concluded deal to acquire SolarCity Corp., the largest U.S. rooftop solar-cell installer. Last week, the company reached a deal with Panasonic to produce solar cells in Buffalo, N.Y., creating some 1,400 jobs in the region.
At a time when President-elect Donald Trump has taken to Twitter to skewer manufacturers for moving jobs to Mexico or China, Tesla sits apart as an all-American carmaker, battery-maker, and solar producer. About 95 percent of a Tesla's components are made in the U.S. and 25,000 of the company's 30,000 employees are in the U.S.. Musk, who visited Trump recently in New York City, was recently named to a strategy group to advise Trump.
Musk's bet that the Gigafactory will arrive just in time may have been a good one, if battery prices are any measure. They fell 22 percent in 2016 and will drop another 15 percent to 20 percent in 2017, according to forecasts by Bloomberg New Energy Finance. However, those price declines soon may slow, as costs boil down to unyielding raw-material costs. Some battery-makers already are struggling to profit in the increasingly competitive environment.
Business on 01/05/2017